Robert Tchenguiz seeks to oust Mitchells & Butlers chief

M&B, the owner of All Bar One chain [pictured], revealed better-than-expected first-half trading

By Mark Kleinman and Louise Armitstead

12:01AM BST 13 Apr 2008

Robert Tchenguiz, the billionaire pubs and property tycoon, and a host of fellow investors in Mitchells & Butlers (M&B), the embattled bars operator, will seek to oust chief executive Tim Clarke unless the company agrees to unlock billions of pounds from its real estate portfolio.

The investors, who are understood to be acting separately but collectively account for about 40 per cent of M&B's shares, are preparing to move on the board of the group of the All Bar One chain pending next month's announcement about the outcome of a strategic review.

Marshall Wace and Centaurus Capital, the hedge funds, and Elpida, the investment vehicle of the Irish investors John Magnier and JP McManus, are monitoring the review closely. Tchenguiz, who owns about 23.5 per cent through his R20 vehicle, is understood to be supportive of Clarke's attempts to engage potential investors, who are being courted by bankers at Citigroup and Greenhill.

One of M&B's largest investors said this weekend: "If the current chief executive cannot attract buyers when the company is trading at such a big discount the investors must find someone who can."

Another leading shareholder added: "M&B is essentially a property company, which is why it has attracted property investors like Tchenguiz, Magnier and Hemmings. They can clearly see the value of the property portfolio and are deeply frustrated by a management that seems unable to monetise it."

The Sunday Telegraph has learned that Punch Taverns, Britain's biggest pubs group, and M&B met last week at M&B's request to discuss a potential combination of M&B and the Spirit-managed pubs business owned by Punch. One scenario that was discussed would involve M&B acquiring Spirit using financing provided by one or more of the private equity firms which have tabled investment proposals. Another could see Punch effectively swapping Spirit for a stake in an enlarged M&B.

That type of combination has the support of a number of Punch's investors, including Marshall Wace, the hedge fund which also holds a significant stake in M&B. Marshall Wace believes that disposing of the Spirit business will allow Punch's management, led by chief executive Giles Thorley, to concentrate on its profitable tenanted pubs business.

Last month, Punch disclosed that it was withdrawing a proposal to pursue a full-blown merger with M&B. In its statement to the stock exchange, Punch said it had "been approached by a number of third parties in relation to possible transactions involving Mitchells & Butlers which may or may not result in an offer for, or other transaction with, Mitchells & Butlers".

The spectrum of negotiations taking place over the future of M&B follow a disastrous foray into the financing markets to hedge against a previous property joint venture between Tchenguiz and M&B. The collapse of the transaction cost M&B almost £400m. Although that has been the primary cause of M&B's travails, they have been exacerbated by the impact of the smoking ban and consumer spending slowdown.

So far, M&B has received three proposals from private equity firms which involve taking stakes of up to 29.9 per cent in the company.

Blackstone and CVC Capital Partners, which are working together, are understood to have held talks with Tchenguiz in the last week. Permira has also submitted an offer for a minority stake.

Bain Capital, the third of the private equity bidders, is understood to be interested largely because of its ownership of Brakes Group, one of Britain's largest food-service companies. Brakes has a distribution-based relationship with M&B worth about £40m, and Bain is thought to believe there are opportunities to expand their relationship.

Such a move could, however, be rejected by other M&B investors. Tchenguiz is prepared to increase his stake above the 25 per cent required to block board proposals at a shareholder meeting held to endorse a transaction.

Investors said they had made it "extremely clear" to the management that if the strategic review did not propose an immediate solution, they will seek to remove the management. In a series of letters and telephone calls in recent weeks, the shareholders have warned the management that they will demand Clarke's resignation if he does not convince them he will release the value of M&B's property portfolio.

After poring over M&B's property portfolio, 25 per cent of which is thought to be based in London, the investors are convinced that the company, which has a market value of £1.3bn, is significantly undervalued. One route open to them could be to requisition an extraordinary meeting to vote on board changes.

Last week, M&B revealed better-than-expected first-half trading. The owner of the Harvester, All Bar One and O'Neills pub chains said like-for-like sales for the 27 weeks to April 5 rose 0.6 per cent compared with the same period last year, thanks to food sales, which helped offset a decline in beer revenues.